CRA Rejects Unreasonable Expenses For Commissioned Employees, Despite Having Filled Out Form T2200

Overview: Why the Tax Court Denied an $86,231 Commissioned Employee Expense Deduction

Thorburn v The King, 2026 TCC 108, is a practical reminder that employee expense deductions are not allowed simply because an expense appears useful, income-producing, or supported by a Form T2200. The Tax Court of Canada dismissed Robert Thorburn’s appeal of a CRA tax reassessment denying an $86,231.25 deduction claimed for his 2014 taxation year. The claimed expense related to a business plan that Mr. Thorburn said he paid to 169335 Canada Inc. (169), a corporation he controlled, because his employer required him to prepare it. He argued that the amount was deductible under paragraph 8(1)(f) of the Income Tax Act, which permits certain commissioned employees to deduct qualifying employment expenses.

The taxpayer lost, but not because every part of his position failed. The Court accepted several important facts in his favour. It accepted that he was a key sales driver for Thorburn Flex Inc. (TFI), that TFI’s investors required him to prepare a business plan, that failure to do so could have cost him his job, and that the business plan had at least some connection to preserving or earning employment income. The taxpayer nevertheless failed on two decisive points: he did not prove that his employment required him to pay someone else to prepare the plan, and he did not prove that the expense was paid in 2014. The Court also held that, even if the expense had otherwise been deductible, section 67 would have limited the deduction to $21,558.85 because the amount claimed was unreasonable.

For taxpayers, Thorburn is not merely a technical case about commissioned employees. It is a broader warning about evidence, transaction timing, and related-party tax planning. A deduction that may look plausible on paper can fail if the legal obligation, payment, pricing, and supporting documents do not line up. Taxpayers facing similar issues should consult an experienced Canadian tax lawyer before claiming significant employment-expense deductions.

“Thorburn is a reminder that tax planning must be implemented as a real legal transaction, not merely as an accounting story prepared after the fact. The Tax Court will look past helpful forms and bookkeeping entries if the documents do not match the legal and commercial reality.”

– David Rotfleisch, Certified Specialist in Taxation Law.

Background: The Business Plan and the Claimed Deduction

Mr. Thorburn had long been involved in a family-founded business that manufactured custom flexible piping products for clients in the power-generation industry. After financial difficulties and a restructuring, he remained president of TFI, but he no longer owned the operating company and instead answered to third-party investors. The Court accepted that this was a difficult period and that he had limited bargaining power.

In 2014, Mr. Thorburn was paid largely through commissions tied to company sales. An email from TFI’s finance controller stated that his expenses would be at his own choice and expense, that legitimate expenses would be deductible, and that TFI would provide official certification confirming that he had not been reimbursed. TFI later completed Form T2200 indicating that he was required to pay expenses including “travel, market/business plan/home office, car.”

The disputed amount related to a business plan. Mr. Thorburn said the investors required him to prepare it so they could understand how he intended to grow TFI’s revenues. The Court accepted that he was required to produce a business plan and that he risked being fired if he failed to do so. But the Court did not accept that he was required to hire 169, or any other person, to prepare it for him.

The structure created obvious tax audit risk. The corporation that allegedly prepared the plan had no employees, was indirectly controlled by Mr. Thorburn, and had approximately $500,000 in non-capital losses, meaning that the fees it earned would not result in tax payable. The plan was allegedly prepared through family members: 169 hired one son for $20,000, and that son allegedly had a brother do the necessary work without compensation. No written agreements between the relevant parties were entered into evidence. The only document supporting the service relationship was an invoice, which the Court found was likely prepared in 2015 rather than on December 31, 2014.

When Employment Expenses Are Deductible: Key Income Tax Act Requirements

The Income Tax Act takes a restrictive approach to employment expense deductions. Unlike a business, an employee cannot deduct every expense that seems commercially sensible or helpful in earning income. The employee must point to a specific statutory rule permitting the deduction. Paragraph 8(1)(f) is one of those rules. It applies to certain employees who sell property or negotiate contracts for their employer and who are paid, in whole or in part, by commissions or similar amounts fixed by reference to the volume of sales made or contracts negotiated.

For paragraph 8(1)(f) to apply, several conditions must be met. The employee must be required to pay the employee’s own expenses; must ordinarily carry on employment duties away from the employer’s place of business; must receive commissions or similar compensation tied to sales or contracts; and must not receive a non-taxable travel allowance described in subparagraph 6(1)(b)(v). The mid-amble to paragraph 8(1)(f) also requires that the amount be expended in the year for the purpose of earning income from the employment.

Even where those statutory requirements are met, section 67 imposes a further limitation. It operates as a reasonableness filter on otherwise deductible expenses. Section 67 provides that, in computing income, no deduction may be made for an outlay or expense that is otherwise deductible under the Income Tax Act, except to the extent that the outlay or expense was reasonable in the circumstances. In other words, paragraph 8(1)(f) may determine whether an employee expense is deductible in principle, but section 67 determines how much of that expense may actually be deducted. The provision prevents a taxpayer from deducting an amount that is excessive, inflated, or commercially unreasonable, even if the expense otherwise falls within a deduction provision.

“Paragraph 8(1)(f) is not a general permission slip for commissioned employees. It is a narrow statutory exception, and taxpayers must prove both the employment requirement and the commercial reality of the expense.”

– Rotfleisch, Certified Specialist in Taxation Law.

The Expense Must Be Required, Not Merely Useful: Form T2200 Is Helpful Evidence, Not a Tax Shield

Mr. Thorburn argued that subparagraph 8(1)(f)(i) does not expressly state that the expense must be required under the employment contract. He also pointed to other employment-expense provisions, including paragraphs 8(1)(h), 8(1)(h.1), and 8(1)(i), which use more explicit contractual language. On that basis, he submitted that paragraph 8(1)(f) should place commissioned employees closer to business taxpayers, who may generally deduct expenses incurred to earn income, subject to the ordinary limits in the Income Tax Act.

The Court acknowledged that this textual argument had some force. But it ultimately concluded that Mr. Thorburn’s position was inconsistent with the dominant line of case law, especially the Federal Court of Appeal’s decision in Urquhart v Canada, 2016 FCA 76. In Urquhart, the Federal Court of Appeal emphasized that the employment contract must be assessed objectively, including any implied or implicit terms. The key distinction is between expenses directly required to fulfill the employee’s employment responsibilities and prudent, innovative, or commercially sensible expenses that merely help the employee earn income. That distinction became central in Thorburn.

The Court’s use of Blott v R, 2018 TCC 1, is especially important. Blott involved a taxpayer who paid his wife to act as an assistant. The taxpayer may have been required to perform work that his wife helped with, but he was not required by his employment contract to hire her. Thorburn applied the same logic. Being required to prepare a business plan was not the same as being required to pay 169 to prepare the business plan.

This analysis also shaped the Court’s treatment of Form T2200. The T2200 stated that Mr. Thorburn was required to pay expenses that included “travel, market/business plan/home office, car.” Many taxpayers assume that once an employer signs a T2200, the deduction is essentially protected. Thorburn shows why that assumption is dangerous. A T2200 is important evidence, but it is not conclusive.

The Court recognized that some cases have placed significant weight on a T2200. In Aboud Schofield v R, 2022 TCC 142, for example, the Court relied heavily on the employer’s form and the surrounding facts in allowing a financial advisor to deduct fees paid to a headhunter to identify a potential partner or assistant. But Thorburn explained why that does not make the T2200 a tax shield. In Aboud Schofield, there was no reason to doubt the employer’s certification, and the expense matched the taxpayer’s actual work circumstances.

In Thorburn, the Court concluded that TFI likely completed the form to honour its promise to provide official certification for expenses, not because the investors had required Mr. Thorburn to pay a third party to prepare the business plan. The practical lesson is that the T2200 must match the legal and commercial reality. It cannot convert an optional, prudent, or tax-planning-driven payment into a required employment expense.

This distinction is crucial for commissioned employees, executives, owner-managers, and salespeople who operate in a grey area between employment and entrepreneurial activity. Paragraph 8(1)(f) does not convert an employee into a self-employed business. If an employee could have performed the task personally, a payment to a consultant, assistant, family member, or related corporation may be treated as optional unless the employment arrangement required that payment.

The Mid-Amble to Paragraph 8(1)(f): Expended in the Year and Paid for the Employment Purpose

The mid-amble to paragraph 8(1)(f) required Mr. Thorburn to show that the amount was expended in 2014 for the purpose of earning income from his employment. The Court noted that “expended” is not the same as “incurred.” In Thorburn, the Court treated “expended” as requiring an actual payment, not merely an obligation that might have arisen.

The Court accepted that Mr. Thorburn eventually paid the $86,231.25 to 169. But it did not accept that the amount was paid before the end of 2014. The evidence pointed the other way. The business plan referred to events after December 31, 2014, including a February 2015 agreement. It contained 2014 fiscal period information. Its footer included “© 2105,” which the Court did not accept as a mere typo. The invoice was likely prepared in 2015; 169 did not report the payment in its GST return for the relevant period; and the working paper supporting the shareholder-loan account was dated April 2015.

The taxpayer’s payment theory depended heavily on related-party accounting entries and set-off. Because the relationships were governed by Quebec civil law, the Court also considered whether compensation could occur when the relevant debts were exigible. The Court accepted that parties can document or record a transaction after the fact. But it emphasized the practical limit that matters for tax planning: parties can record a transaction after it occurs, but they cannot create one retroactively. The Court found that the relevant agreement and accounting entries were most likely put together when the 2014 tax return was being prepared in spring 2015.

The purpose requirement, by contrast, was not the taxpayer’s fatal problem. The Court accepted that the business plan helped preserve Mr. Thorburn’s employment because he risked being fired if he ignored the investors’ request. It also accepted that the plan had at least some value in identifying sales targets that could increase future commissions. But satisfying the purpose test did not cure the failure to prove that the expense was required or that the amount was expended in 2014.

A Sufficient Commission Nexus Does Not Avoid Section 67 Reasonableness Review

The CRA also argued that Mr. Thorburn failed to satisfy subparagraph 8(1)(f)(iii) because his commissions were calculated by reference to TFI’s sales, rather than sales made by him personally. The Court rejected that argument. This was one of the more taxpayer-friendly parts of Thorburn, and it shows that subparagraph 8(1)(f)(iii) should be applied in a practical, business-like manner rather than through a narrow mechanical formula.

The Court began with Griesbach v Minister of National Revenue, [1990] 2 C.T.C. 2593, where a taxpayer who received both salary and an amount equal to 20% of the employer’s pre-tax gross profits did not satisfy the commission requirement. In Griesbach, the compensation was not sufficiently fixed by reference to sales made or contracts negotiated by that taxpayer. The proper question is not merely whether the compensation formula refers perfectly to the taxpayer’s own sales. The question is whether there is a sufficient connection between the amounts received by the taxpayer and the volume of sales made or contracts negotiated by that taxpayer.

On the facts, that connection existed. Mr. Thorburn was the main sales force behind TFI and was responsible for the bulk of its sales, even though he had some assistance from other sales personnel. The Court therefore found that his commissions had a sufficient nexus to the relevant sales and that subparagraph 8(1)(f)(iii) was satisfied. This finding matters because it confirms that a commissioned employee is not automatically disqualified merely because the commission formula refers to employer sales, if the evidence shows that the taxpayer was, in substance, driving those sales.

But this finding did not resolve the appeal. Even where the commission requirement is satisfied, section 67 remains a separate limitation on the amount that may be deducted. Section 67 does not ask whether the taxpayer was a commissioned employee. It asks whether the amount of the claimed outlay or expense was reasonable in the circumstances. In Thorburn, this meant that even if the business-plan expense had otherwise qualified under paragraph 8(1)(f), the Court still had to consider whether $86,231.25 was a commercially reasonable amount to pay.

The Court confirmed that judges should not second-guess ordinary business decisions simply because they might have paid less. However, section 67 can still limit a deduction where the amount is so high that no reasonable businessperson, looking only at the taxpayer’s business needs, would have agreed to pay it. Put differently, section 67 is not a hindsight review of whether the taxpayer made the best business decision. It is a reasonableness review of the quantum claimed.

On the evidence, the Court found that the claimed amount was excessive. The business plan was short: its main body was only 11 pages, with 5 pages of annexes. Parts of the document appeared promotional rather than analytical, the financing page contained tables marked “TBA,” and much of the project-target information appeared to be publicly available online. The Court was also skeptical of the claim that Jonathan, the taxpayer’s son, performed most of the work on the business plan on 169’s behalf while also holding a full-time job, and spent 840 hours on the project without compensation.

Had the deduction otherwise been available, the Court would have limited the reasonable amount to $21,558.85. This part of Thorburn is especially important in related-party cases. A related corporation, a family member, a year-end invoice, and a tax-loss position in the payee are facts that invite CRA scrutiny. The taxpayer need not prove that the cheapest possible option was chosen. But the taxpayer should be able to show, with objective evidence, why the price was commercially reasonable in light of the services actually performed, the quality of the work product, the time spent, and the market value of comparable services.

Practical Implications: Building a Defensible Record Before the CRA Challenges the Deduction

Thorburn should not be read as saying that commissioned employees can never deduct substantial employment expenses. The Court accepted that Mr. Thorburn satisfied the commission requirement under subparagraph 8(1)(f)(iii) and that the business plan had a sufficient employment-income purpose. That is important. The deduction failed because the required-expense evidence and timing evidence were not strong enough, and because the amount claimed was excessive.

The practical lesson is that employment expense deductions must be planned and documented before the relevant taxation year ends. Taxpayers should keep contemporaneous evidence showing the employer’s requirement, the specific expense required, the absence of reimbursement, the business purpose, and the date of payment. A T2200 is helpful, but it should be supported by the employment agreement, emails, workplace policies, invoices, payment records, and the actual work product. A T2200 that does not match the underlying employment arrangement can create false confidence and may even increase tax audit risk if it appears to have been completed as part of a tax plan rather than as a genuine certification of employment conditions.

The evidentiary burden is even heavier in related-party transactions. Where a taxpayer pays a family member, a related corporation, or a corporation with tax losses, the CRA will naturally ask whether the arrangement was commercially necessary or tax-driven. Written agreements should clearly identify the parties, scope of work, deliverables, pricing method, payment terms, and timing. The taxpayer should also be prepared to show that the work was actually performed and that the amount paid was commercially defensible.

Pricing is often where these cases become vulnerable. A taxpayer does not need to prove perfect market pricing or choose the cheapest possible service provider. But a large fee paid to a related entity for a modest deliverable is exposed under section 67. Time records, market comparables, drafts, emails, research files, invoices from outside suppliers, and evidence of the provider’s expertise can all become important. In Thorburn, the Court looked beyond the invoice and examined the quality of the business plan, the hours allegedly spent, the relationship between the parties, and the commercial value of the work.

Most importantly, Thorburn shows that the Tax Court evaluates the whole transaction. The Court considered the employer’s emails, the T2200, the business plan, the invoice, GST reporting, shareholder-loan entries, family relationships, the payee corporation’s losses, witness testimony, and the commercial value of the work. Taxpayers should expect the CRA and the Court to take the same broad approach when reviewing employment expense deductions, especially where the amount is large, the payment is made near year-end, or the recipient is related to the taxpayer.

Pro Tax Tips: Avoiding Tax Audit Problems with Employment Expense Claims

For taxpayers claiming employment expenses, the safest approach is to build the evidentiary record before filing the return, not after the CRA begins asking questions. The taxpayer should be able to show, with contemporaneous documents, that the employer required the specific expense, that the taxpayer paid it personally, that it was not reimbursed, that it was paid in the taxation year claimed, and that the amount was commercially reasonable. For related-party payments, taxpayers should go further and prepare the type of documentation that would exist between arm’s-length parties. A deduction supported only by a T2200, a year-end invoice, and related-party accounting entries may be vulnerable in a CRA tax audit or Tax Court appeal.

Where the amount is large, taxpayers should obtain advice before filing the return. A tax lawyer can help identify which statutory rule supports the deduction, whether the employment contract or T2200 is sufficient, what documents should be preserved, and whether the payment structure creates avoidable tax audit risk. In many cases, the most important work happens before the first CRA tax audit letter arrives, because once the CRA identifies timing, related-party, or reasonableness problems, the taxpayer may be forced to defend a record that was never built for litigation.

“The best time to defend an employment expense deduction is before it is claimed. Once the CRA tax audit begins, the taxpayer is often trying to explain gaps that proper planning could have avoided.”

– David Rotfleisch, Certified Specialist in Taxation Law.

FAQ: Practical Answers About Thorburn, T2200 Forms, and Commissioned Employee Expenses

Does a signed T2200 guarantee that employment expenses are deductible?

No. A T2200 is important evidence, but it is not conclusive. The CRA and the Tax Court can still examine whether the employee was actually required to incur the expense and whether the form accurately reflects the employment arrangement.

Can a commissioned employee deduct expenses under paragraph 8(1)(f)?

Yes, but only if the statutory requirements are met. The employee must show, among other things, that the expense was required by the employment arrangement, that the employee was not reimbursed, that the amount was expended in the year, and that the expense was paid for the purpose of earning employment income.

Is being required to do work the same as being required to hire someone else to do it?

No. Thorburn draws a clear distinction between being required to prepare a business plan and being required to pay a third party to prepare it. The latter must be proven separately. This distinction can be decisive where the employee pays an assistant, consultant, family member, or related corporation.

Why did the Court accept the commission requirement in Thorburn?

The Court found that Mr. Thorburn was directly responsible for the vast majority of TFI’s sales. Even though his commission was calculated by reference to company sales, there was a sufficient nexus between his remuneration and the sales he made or contracts he negotiated.

Why did the timing of payment matter?

Paragraph 8(1)(f) requires the amount to be expended in the year. The Court accepted that the amount was eventually paid, but found that it was not paid in 2014. Post-year-end documents, accounting entries, and set-offs could not retroactively create a 2014 payment.

Can related-party invoices support a deduction?

Yes, but related-party invoices require careful support. The taxpayer should have written agreements, clear deliverables, evidence of services performed, pricing support, payment records, and consistent accounting and tax reporting. A bare invoice is rarely enough when the facts suggest tax planning.

How does section 67 affect employment expense deductions?

Section 67 limits deductions to amounts that are reasonable in the circumstances. Even if an expense otherwise meets paragraph 8(1)(f), the CRA may argue that the amount is excessive. In Thorburn, the Court said that only $21,558.85 would have been reasonable if the deduction had otherwise been allowed.

What should taxpayers do before claiming an aggressive employment expense deduction?

They should obtain tax advice from an experienced Canadian tax lawyer before filing, confirm that the legal requirements are met, preserve contemporaneous documents, and consider whether the amount would appear commercially reasonable to an objective third party. This is especially important when the payment is made to a related person or corporation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.